JATA - Fall 1991

Volume 13, No. 2

An Analysis of the Effectiveness of the Research and Experimentation Tax Credit in a q Model of Valuation

Janet W. Tillinger


This research analyzes the effectiveness of the research and experimentation tax credit for a broad sample of firms over the period 1981 through 1985. The study stratifies firms according to their q ratios (Tobin and Brainard 1977) to test the hypothesis that the R&D credit provided more of an incentive to increase R&D activity for firms in equilibrium, with q equal to one, than for firms with q ratios either above or below one. Regression results are consistent with expectations. Cost-benefit analysis indicates that the 1981-1985 credit was not cost effective for any of the groups and was least cost effective for firms with q greater than one; that the OBRA '89 design of the credit may be even less cost effective; and that the current rate of credit is probably too low to provide an incentive for either firms with q less than one or firms with q greater than one.

An Empirical Investigation of Factors Influencing Tax Practitioner Compliance

Philip M. J. Reckers, Debra L. Sanders and Robert W. Wyndelts


Tax practitioners are viewed by the government as contributing significantly to taxpayer noncompliance in the United States. Congress has tried to influence their behavior through the use of preparer penalties. Prior research, based on opinions and beliefs of practitioners, has indicated that preparer penalties may not be effective in altering practitioners' behavior. This research empirically tests whether preparer penalties influence the aggressiveness of CPAs when (1) giving advice to a client, and (2) signing a client's return. This research also examines the impact of client compensation on the aggressiveness of CPAs. The results indicate that a higher level of present and future compensation received from a client does increase the aggressiveness of CPAs when giving advice or signing returns. Preparer penalties were found to be effective in reducing CPAs' aggressiveness for only signing returns.

An Experimental Investigation of Taxpayer Judgments on Rate Structure in the Individual Income Tax System

Peggy A. Hite and Michael L. Roberts


The purpose of this research is to examine taxpayers' perceptions of vertical equity for the individual income tax. Approximately six hundred randomly selected heads of households from across the United States responded by mail to an eight-page booklet containing open-ended, scaled-response, and experimental questions about fair tax rates for persons at different income levels. A between-subjects design tested whether tax assessments varied when expressed in rates or dollars and whether differences in federal budget requirements influenced tax burden allocations. A within-subject analysis tested the association between self-interest and tax rate preferences. In general, respondents preferred a mildly progressive income tax rate structure. Tax burdens assessed in dollars rather than rates were significantly less progressive. Normative vertical equity choices remained constant even when government revenue needs changed sharply. Self-interest was evident in respondents' vertical equity choices, as indicated by significant correlations between respondents' income and assigned tax burdens for six of nine hypothetical taxpayers whose incomes ranged from $5,000 to $100,000.

Another Look at the Tax-Favored Retirement Savings Puzzle

Julie H. Collins and James H. Wyckoff


This paper examines the relationship between three forms of tax-favored retirement savings and other savings. The tax-favored retirement savings vehicles include Individual Retirement Accounts, tax-deferred compensation plans, and private pension plans. We find a positive relationship between mean net worth increases from 1983 to 1986 and the number of tax-favored investment vehicles owned by households. We use a regression to control for other factors that may influence savings behavior and find a weak, but generally negative, statistical relationship between tax-deferred retirement savings and other savings. Our examination of attitudinal questions regarding savings behavior discloses that households who increasingly employ tax-deferred investment vehicles have an increased propensity to save, but their savings behavior is influenced less by increased rates of return. The nature of the results tends to support the view that tax-deferred retirement savings do not increase national savings by a meaningful amount.

A Primer on Multinational Tax Research

Thomas C. Pearson and Kevin E. Murphy


Interest in issues involving multinational taxation and foreign tax systems has increased significantly in recent years. This article identifies electronic legal databases, loose-leaf services, treatises, and journals that provide information on foreign tax provisions. Potential sources of data available for multinational tax research are also identified.

Restructuring Corporate Real Estate Holdings Using PTPs and REITs

George H. Lentz and Jerrold J. Stern


Real estate constitutues a major portion of the assets owned by U.S. corporations. Recent tax law changes, competitive pressures to use assets more efficiently, and the current hostile corporate takeover climate are prompting tax and financial advisors to consider alternative ways for corporations to hold corporate real estate. Two notable alternatives are publicly traded partnerships (PTPs) and real estate investment trusts (REITs). The primary purpose of this paper is to identify and compare the relative tax and non-tax advantages of using PTPs and REITs to restructure corporate real estate. Algebraic models and a conceptual framework are presented to help managers and corporate advisors assess the costs and benefits of restructuring a corporation's real estate holdings.